Perform a SWOT analysis for The Coca-Cola Company in the soft drink category. What are the biggest threats and opportunities? What are Coca-Cola’s relevant strengths and weaknesses? W

141 Guffey and Loewy, Essentials of Business Communication, 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 141 Guffey and Loewy, Essentials of Business Communication, 12th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER

Environmental and Strategic Analyses

I felt a great disturbance in the Force.

—Obi Wan Kenobi, Star Wars

You can't stop the waves, but you can learn to surf.

—Jon Kabat-Zinn, MD, founder of Mindfulness-Based Stress Reduction

Marketing without data is like driving with your eyes closed.

—Dan Zarrella, social media scientist.

• Chapter 5’s focus changes from the market to the environment surrounding the market.

• Being attentive to broader environmental trends can make-or-break companies.

We will focus on trends emerging from: • technology • Culture • Business • Government • Economics

After examining trends, we will delve into 3 types of analysis:

(1) impact analysis: Assess the relative importance of threats facing the firm.

(2)scenario analysis: Assess the meaning and impact of different environmental events.

(3)SWOT analysis: Compares environmental threats and opportunities with firm strengths and weaknesses to derive strategic actions.

ENVIRONMENTAL ANALYSIS

• Environmental analysis is broad and casts a wide net to catch different stakeholders and trends that may have implications for the firm.

• Requires discipline to make sure that it does not become an out-of- control fishing expedition that occupies time and generates reports but provides little real insight and actionable information.

• It is helpful to provide some structure in the form of 5 broad areas of inquiry that are often useful:

1. Demographics 2. Culture 3. business and technology 4. government/policy 5. economic trends.

* The exact areas that should be monitored will vary by business.

Customer Trends

• Customer trends can present both threats and opportunities.

• They have helped create fortunes for those companies able to take advantage of these trends and driven out less the fortunate.

• These trends can emerge out of the sheer force of demographics or involve more profound cultural shifts.

• The following sections discuss recent demographic, cultural, and business and technology trends occurring in customer markets.

Demographic Trends

Aging: The world population is aging more rapidly due to decreased fertility rates and people's tendency to live longer.

Changing Ethnic Mix: The United States is projected to become more racially and ethnically diverse in the coming decades due to both birth rate and immigration.

• By 2060, the non-Hispanic White population is expected to decrease from 50% to 44%

• No ethnic group is predicted to have a majority share of the U.S.

1. The population of those who identify as two or more races. 2. Asian population 3. Hispanic population

Demographic Trends

Women in the Labor Force: Since the 1960s, American women have increasingly participated in the labor force and the gender pay gap has decreased.

Shifting Family Structures: The marriage rate has been declining for decades, and the number of households with two-parents is declining in the United States. Simultaneously, divorce, remarriage, and cohabitation rates are increasing.

Decreasing Middle Class: In 2015, the number of middle-class U.S. adults fell to 50 percent, while the lower and upper classes expanded.

Boomerang Generation: 29 percent of young adults have moved back in with their parents.

Cultural Trends

The cultural values underlying a market vary according to the unique history of a geography, which can be a region, country, state, or city.

6 dimensions of culture on which countries differ:

1. Power Distance: Societal comfort with unequal distribution of power between members of society.

2. Individualism versus Collectivism: Degree to which people primarily identify as individuals or as members of groups

3. Masculinity versus Femininity: Societal preference for achievement, competition, and toughness versus cooperation, caring, and quality of life

4. Uncertainty Avoidance: Level of discomfort with the unknown and ambiguity 5. Long-term versus Short-term Orientation: Preference for maintaining traditions and

norms versus comfort with change 6. Indulgence versus Restraint: Societal acceptance of people's desire to enjoy life and

have fun.

Sustainability

Customers care a great deal about sustainability, or the impact of their purchases on the environment, and there are a variety of different ways that this concern influences their purchasing behaviors. Example, many customers have switched from conventional products, such as incandescent light bulbs, gas-fueled cars, and conventionally grown foods, to more eco-friendly ones, such as CFL or LED light bulbs, hybrid cars, and organic produce.

Other customers consider how sustainable a firm's business practices are when deciding whether or not to make a purchase.

Still other customers are choosing to not purchase new products altogether, instead repairing old products or borrowing or trading products through organizations such as Freecycle.

Business and Technology Trends

Business and technology trends represent opportunities to those firms in a position to capitalize and threats to firms which are not.

Big Data

• Businesses are swamped by data and are struggling to turn that data into insights, more valuable products and services, and better decisions.

• It is truly an avalanche that has many sources, some new and some ongoing.

• One distinguishing feature of these data is that they are at the individual customer level, which means that the company has a much richer understanding of customer behavior and the ability to act on it.

• A second distinguishing feature of big data is that it is often real time in nature, which means that companies are able to learn quickly if there are problems and work to resolve them. • For example, social media activities help alert the firms to problems with their

products and services, and credit card companies are able to alert their customers to the possibility of fraud by documenting purchases in real time and comparing to the customers' purchase history patterns.

Big Data

• Using big data to get an edge requires a set of competencies. • It is critical to be able to ask the right questions, both strategic and tactical.

• With big data , questions are not obvious, and insights are often hidden.

• Finding the right questions requires a deep connection to customers achieved through interviews or visits where customers purchase and use products.

• Firms need to be competent in designing and interpreting an ongoing flow of experiments.

• Big data = Big integration challenges

• Companies need to be good at data storage, data handling, analytics, and the development of problem-driven statistical models. Without such capabilities, they can't play the big data game.

Innovations

• Trends, both market and environmental, can stimulate innovation. • It is useful to distinguish between incremental, substantial, and

transformational innovation. • They differ in terms of how new they are and how much wealth they

represent for the business. • Incremental innovation makes the offering more attractive or

profitable, but does not fundamentally change customer behavior, the value proposition, or the go-to-market strategy.

• Substantial innovations have 10x the impact of incremental innovations

• Transformational innovations are 10x greater again. • Innovations need to be detected and tracked by companies.

Incremental Innovations • Incremental innovation is a

series of small improvements or upgrades made to a company's existing products, services, processes or methods.

• The changes implemented through incremental innovation are usually focused on improving an existing product's development efficiency, productivity and competitive differentiation.

Substantial Innovations • Substantial innovations are in between in newness and impact. • Often represent a new generation of products – Boeing 747 or the iPad. • May make existing products obsolete for many customers. • Substantial innovations are much more common than transformational

innovations but can still create major changes in the competitive landscape.

• Innovations that are transformational or even substantial are often championed by new entrants into the industry

• Established /Incumbent firms—especially successful ones—have incentives to protect and improve their profitable niches in the market by extending current offerings with incremental innovations.

Transformational Innovations • Provides a fundamental change in a business model. • Involving a new value proposition and a new way to

manufacture, distribute, and/or market the offering. • It is likely to make the assets and competencies of

established firms irrelevant. • Examples:

• Steam power ultimately replaced sail-powered transport • The automobile replaced horse-drawn transportation.

• Transformational innovations often attract customers who had been the sidelines because the prior offering was too expensive or lacked some critical element.

Workplace

Online communication platforms have increased employees' ability to work remotely. • 37% of U.S. workers reported having used a

computer to work from home. • Remote work can be a boon for employees

when it increases their flexibility, but employees' ability to work remotely also means that they are increasingly expected to be “on call” for work outside of traditional business hours.

• This blurring of the lines between work and leisure time is further augmented by the trend for companies to offer lifestyle “perks” to their employees.

Sustainable Businesses – Green Drivers

1. Concerns about global warming and resource depletion. 2. The ability of green programs to provide functional 3. A desire to be respected by customers and employees, both of which

value a relationship with a firm that they admire.

Government/Policy Trends

The addition or removal of legislative or regulatory constraints can pose major strategic threats and opportunities for companies. • A ban of some ingredients in food products or cosmetics • The impact of governmental efforts to reduce piracy in industries such as

software • Deregulation in banking, energy, and other industries can affect the nature and

intensity of competition as firms enter and exit to take advantage of the change.  The automobile industry is affected by fuel economy standards, the luxury tax

on automobiles, and incentives for electronic car purchases.  Companies such as Amazon are dramatically affected by regulations requiring

the collection sales tax on products shipped.

Companies should track all legislative and regulatory activities that have positive and negative implications for their business.

Economic Trends

• Economic factors play a critical role in the effectiveness of a firm strategy.

• A very different strategy is needed when the economic climate is healthy than when it is under stress.

• It is far better and critical to put strategies into place before a strong or weak economy hits.

• Recessions can also provide opportunities for major changes in a company's competitive advantage. • Some industries and offerings thrive in a

recession. • Consumer goods • Utilities • Communications • Healthcare

Economic Trends • A recession can provide an opportunity to introduce products or

marketing programs. • The media environment is likely to be less cluttered. • Competitors will be less motivated and able to respond.

• It is important to find ways to communicate value, often a necessity during tough economic times, without hurting the brand.

• Firms can benefit from spending on marketing in a recession. • Spending when other companies are cutting costs can help a firm

consolidate its gains or provide an opening for a new firm to enter the market.

Cultivating Vigilance

• There is a strong tendency to fail to perceive or underestimate important trends or to miss the accurate prediction of future events.

• Consider how the threats from digital photography were ignored at Kodak. • Invented the digital camera in 1975 • Had clear indicators as early as 1979 that that the market would

gradually switch from film to digital over the next thirty years, but these warnings were ignored.

• Executives were focused on execution and had little attention span left for “might be.”

• Kodak's executives encouraged innovation but directed it toward the chemical side of film development rather than the digital side.

Cultivating Vigilance

• Another reason is a natural perceptual bias toward ignoring or distorting information that conflicts with current strategies. This “confirmation bias” means that critical information is lost. Because Kodak's business model was based on selling inexpensive cameras and expensive film, filmless digital cameras were regarded as “the enemy” rather than the future.

• Another reason is the support of “groupthink” within the organization—it is awkward to point out that basic assumptions may be wrong. In the case of Kodak, being centered in the one-company town of Rochester, New York, further limited criticism of the company.

Cultivating Vigilance

Research on organizational vigilance suggests several ways that leaders and organizations can improve. 1. Be curious, externally focused, and connected. What is happening in areas that

will impact the business? Travel, observe, and interact with people of all types. 2. Make every employee a listening post for the organization and create processes

that allow the observance of even small signals from any sector to be shared in a low-cost manner and recognized in annual reviews.

3. Develop a systematic set of processes for collecting, disseminating, and responding to information from the firm's stakeholders.

4. Create discovery mechanisms. Texas Instruments holds a “Sea of Ideas” meeting each week to recognize emerging needs and innovation at the fringe of its business.

5. force a long-term perspective; get away from day-to-day execution issues and programs. Some firms create a separate division of the company that is shielded from the demand to create immediate value for the company in order to develop truly innovative ideas and seize long-term opportunities.

STRATEGIC ANALYSIS

• Uncertainty often emerges from environmental analysis. • Before strategies are developed, two strategic analysis steps

should be taken… 1. Strategic uncertainties need to be grouped into logical

clusters or themes. It is then useful to assess the importance of each cluster in order to set priorities with respect to information gathering and analysis. Impact analysis is designed to accomplish that assessment.

2. Sometimes the strategic uncertainty is represented by a future trend or event that has inherent unpredictability. When this is the case, information gathering and additional analysis will not be able to reduce the uncertainty. In that case, scenario analysis can be employed. Scenario analysis basically accepts the uncertainty as given and uses it to drive the development of two or more future scenarios. Strategies are then developed for each.

Impact Analysis

An important objective of environmental analysis is to rank strategic uncertainties and decide how they are to be managed over time. Which uncertainties merit intensive information gathering and in-depth analysis and which merit only a low- key monitoring effort?

The problem is that dozens of strategic uncertainties and many second-level strategic uncertainties are often generated in environmental analysis. These strategic uncertainties can lead to an endless process of information gathering and analysis that can absorb resources indefinitely. A publishing company may be concerned about cable TV, lifestyle patterns, educational trends, geographic population shifts, and printing technology. Any one of these issues involves a host of subfields and could easily spur limitless research. Unless distinct priorities are established, external analysis can become descriptive, ill-focused, and inefficient.

The extent to which a strategic uncertainty should be monitored and analyzed depends on its impact and immediacy. The impact of a strategic uncertainty is related to (a) the extent to which it involves trends or events that will impact existing or potential businesses; (b) the importance of the involved businesses to the overall

Impact of Strategic Uncertainties

Each strategic uncertainty involves potential trends or events that could have an impact on present, proposed, and even potential businesses. For example, trends in the microbrewery market can impact a beer firm's proposed microbrewery entry and its current imported beer offering. A trend toward natural foods may create strategic uncertainties while also presenting opportunities for a sparkling water product line for Coca-Cola Inc. The impact of a strategic uncertainty will depend on the importance of the impacted business to a firm. Some businesses are more important than others. The importance of established businesses may be indicated by their associated sales, profits, or costs. However, these metrics might need to be adjusted to account for the future growth potential in such businesses. The number of involved businesses can also be relevant to a strategic uncertainty's impact. The higher the number, the greater the impact of the uncertainty. Finally, if there is a low probability of the event occurring, this reduces the expected impact. For example, although a bill introduced to Congress could reshape a business, if trends show no support from members, the expected impact of the legislation is low.

IMPACT OF NEW TECHNOLOGIES

It can be important, even critical, to manage the transition to a new technology. The appearance of a new technology, however, even a successful one, does not necessarily mean that businesses based on the prior technology will suddenly disappear. A group of researchers at Purdue studied fifteen companies in five industries in which a dramatic new technology had emerged:35

Diesel-electric locomotives versus steam Transistors versus vacuum tubes Ballpoint pens versus fountain pens Nuclear power versus boilers for fossil-fuel plants Electric razors versus safety razors.

Two interesting conclusions emerged that should give pause to anyone attempting to predict the impact of a dramatic new technology. First, the sales of the old technology continued for a substantial period, in part, because the firms involved continued to improve it. Safety-razor sales have actually increased 800 percent since the advent of the electric razor. Thus, a new technology may not signal the end of the growth phase of an existing technology. In all cases, firms involved with the old technology had a substantial amount of time to react to the new technology.

Immediacy of Strategic Uncertainties

Events or trends associated with strategic uncertainties may have a high impact, but such a low probability of occurrence that it is not worth actively expending resources to gather or analyze information. Similarly, if occurrence is far in the future relative to the strategic-decision horizon, then it may be of little concern. Thus, the harnessing of tide energy may be so unlikely or may occur so far in the future that it is of no concern to a utility company. Finally, consider the reaction time available to a firm compared with the reaction time likely needed. After a trend or event crystallizes, a firm needs to develop a reaction strategy. If the available reaction time is inadequate, it becomes important to reinvest and anticipate emerging trends and events better so that future reaction strategies can be initiated sooner.

Managing Strategic Uncertainties

Figure 5.4 suggests a categorization of strategic uncertainties for a given business. If both immediacy and impact are low, then a low level of monitoring and analysis is recommended. If the impact is thought to be low but the immediacy is high, the area may merit monitoring and analysis. If the immediacy is low and the impact high, then the area may require more in- depth monitoring and analysis and contingent strategies may be considered but not necessarily developed and implemented. When both immediacy and potential impact of the underlying trends and events are high, then an in-depth analysis will be appropriate, as will be the development of reaction plans or strategies.

Scenario Analysis

Scenario analysis can also help firms deal with strategic uncertainties. The difference between impact analysis and scenario analysis is that instead of investing in more information search and analysis to reduce uncertainty, the firm creates a small number of environmental scenarios, assesses their likelihood and impact, and then uses this analysis to develop or test potential strategies.

There are two types of scenario analyses. In the first type, strategy-developing scenarios, the object is to provide insights into future potential environments and then use these insights to evaluate existing business strategies and stimulate the creation of new ones. Such analyses can help create contingency plans to guard against disasters—an airline adjusting to a terror incident, for example, or a pharmaceutical company reacting to a product safety problem. They can also suggest investment strategies that enable the organization to capitalize on future opportunities caused by customer trends or technological breakthroughs.

In the second type of analysis, decision-driven scenarios, a strategy is proposed and tested against several scenarios.36 The goal is to challenge the strategy, thereby helping to make the go/no-go decision and suggesting ways to make the strategy

Step 1: Create Scenarios

Strategic uncertainties can drive scenario development. The impact analysis will identify the strategic uncertainty with the highest priority for a firm. This source of uncertainty should be the focus of the scenario. A manufacturer of a medical imaging device may want to know whether a technological advance will allow its machine to be made at a substantially lower cost. A farm equipment manufacturer or ski area operator may believe that the weather—for example, whether a drought will continue—is the most important area of uncertainty. A server firm may want to know whether a single software standard will emerge or if multiple standards will coexist. The chosen uncertainty could then stimulate two or more scenarios.

When a set of scenarios is based largely on a single strategic uncertainty, the scenarios themselves can usually be enriched by identifying related events and circumstances. Thus, an inflation-stimulated recession scenario would be expected to generate a host of conditions for the appliance industry, such as price increases and retail failures. It is sometimes useful to generate scenarios based on possible outcomes: optimistic, pessimistic, and most likely. The consideration of a pessimistic scenario helps test existing assumptions in a firm's strategic plan. The “what-if” exercises in a scenario analysis provide a nonthreatening way to consider the possibility of clouds or even rain on the picnic.

SWOT Analysis

Environmental analysis identifies a host of many potential threats and opportunities. The challenge is to determine which are most relevant for the firm's business and to prioritize them. Both impact and scenario analyses can help the firm develop initial answers. However, even with similar answers from these analyses, not all companies should respond to all environmental events. Whether and how a company responds will be a function of the nature of the environmental activities and the company's own strengths and weaknesses. A SWOT analysis is a framework that guides such decisions. SWOT analysis examines a set of environmental trends classified company strengths (S) and weaknesses (W) and external opportunities (O) and threats (T).

Firm Strengths and Weaknesses

In developing or implementing a strategy, it is important to perform an internal analysis of the firm. This analysis follows the same checklist of strengths and weaknesses used to examine competitors in Chapter 3 (see Figure 3.4) and will not be reviewed in depth again here. There are more than three dozen organized under the categories of innovation, manufacturing, financial, management, marketing, brand equity, and customer base. This checklist is a good place to start when analyzing whether the company can respond to a threat or opportunity or whether it needs to build new assets and competencies to do so. In addition, the Appendix A contains other financial and nonfinancial criteria important to an internal analysis of the firm that should be used in this assessment.

Each asset or competence relevant to the business should be evaluated as to its strength and impact. Is it dominant in that it provides a point of advantage that has endured and is likely to remain so in the future? The service delivery capability of Disney theme parks, for example, is so superior that other firms study its operation. Is the organization willing to invest to make the asset or competence dominant into the future? Certainly, Disney has shown this willingness over many decades. The investment commitment needs to be factored into the financial resource picture. It may mean that resources for new ventures will be limited.

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